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principles of microeconomics

Questions and Answers of Principles Of Microeconomics

Most economists believe that tariffs area. a good way to promote domestic economic growth.b. a poor way to raise general economic well-being.c. an often necessary response to foreign competition.d.
What are the two subfields of economics? Explain what each subfield studies.
Before Frank and Ruby engage in trade, each of thema. consumes at a point inside his or her production possibilities frontier.b. consumes at a point on his or her production possibilities frontier.c.
After Frank and Ruby engage in trade, each of thema. consumes at a point inside his or her production possibilities frontier.b. consumes at a point on his or her production possibilities frontier.c.
In an hour, Mateo can wash 2 cars or mow 1 lawn, and Sophia can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing?a. Mateo in
Between Mateo and Sophia, who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing?a. Mateo in washing, Sophia in mowingb. Sophia in washing, Mateo in
When Mateo and Sophia produce efficiently and make a mutually beneficial trade based on comparative advantage,a. Mateo mows more and Sophia washes more.b. Mateo washes more and Sophia mows more.c.
A nation will typically import those goods in whicha. the nation has an absolute advantage.b. the nation has a comparative advantage.c. other nations have an absolute advantage.d. other nations have
Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor and
Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate takes twice as long to do each task. How should the roommates allocate the work?a. Kayla should do more of the
The best definition of a market isa. a store that offers a variety of goods and services.b. a place where buyers meet and an auctioneer calls out prices.c. a group of buyers and sellers of a good or
In a perfectly competitive market,a. every seller tries to distinguish itself by offering a better product than its rivals.b. every seller takes the price of its product as set by market
The market for which product best fits the definition of a perfectly competitive market?a. eggsb. tap waterc. moviesd. computer operating systems
A change in which of the following will NOT shift the demand curve for hamburgers?a. the price of hot dogsb. the price of hamburgersc. the price of hamburger bunsd. the income of hamburger consumers
Which of the following will shift the demand curve for pizza to the right?a. an increase in the price of hamburgers, a substitute for pizzab. an increase in the price of root beer, a complement to
If pasta is an inferior good, then the demand curve shifts to the _________ when _________ rises.a. right; the price of pastab. right; consumers’ incomec. left; the price of pastad. left;
Which of the following moves the pizza market up along a given supply curve?a. an increase in the price of pizzab. an increase in the price of root beer, a complement to pizzac. a decrease in the
Which of the following shifts the supply curve for pizza to the right?a. an increase in the price of pizzab. an increase in the price of root beer, a complement to pizzac. a decrease in the price of
Movie tickets and film streaming services are substitutes. If the price of film streaming increases, what happens in the market for movie tickets?a. The supply curve shifts to the left.b. The supply
The discovery of a large new reserve of crude oil will shift the _________ curve for gasoline, leading to a _________ equilibrium price.a. supply; higherb. supply; lowerc. demand; higherd. demand;
If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?a. Prices and quantities both rise.b. Prices and quantities both fall.c. Prices rise and
Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold?a. an increase in the price of peanut butter, a complement
An increase in _________ will cause a movement along a given supply curve, which is called a change in _________.a. supply; demandb. supply; quantity demandedc. demand; supplyd. demand; quantity
A good tends to have a small price elasticity of demand ifa. the good is a necessity.b. there are many close substitutes.c. the market is narrowly defined.d. the long-run response is being measured.
An increase in a good’s price reduces the total amount consumers spend on the good if the _________ elasticity of demand is _________ than one.a. income; lessb. income; greaterc. price; lessd.
A linear, downward-sloping demand curve isa. inelastic.b. unit elastic.c. elastic.d. inelastic at some points, and elastic at others.
The citizens of Lilliput spend a higher fraction of their income on food than do the citizens of Brobdingnag. The reason could be thata. Lilliput has lower food prices, and the price elasticity of
The price of a good rises from $16 to $24, and the quantity supplied rises from 90 to 110 units.Calculated with the midpoint method, the price elasticity of supply isa. 1/5.b. 1/2.c. 2.d. 5.
If the price elasticity of supply is zero, the supply curve isa. upward sloping.b. horizontal.c. vertical.d. fairly flat at low quantities but steeper at larger quantities.
The ability of firms to enter and exit a market over time means that, in the long run,a. the demand curve is more elastic.b. the demand curve is less elastic.c. the supply curve is more elastic.d.
An increase in the supply of grain will reduce the total revenue grain producers receive ifa. the supply curve is inelastic.b. the supply curve is elastic.c. the demand curve is inelastic.d. the
In competitive markets, farmers adopt new technologies that will eventually reduce their revenue becausea. each farmer is a price taker.b. farmers are short-sighted.c. regulation requires the use of
Because the demand curve for oil is _________ elastic in the long run, OPEC’s reduction in the supply of oil had a _________ impact on the price in the long run than it did in the short run.a.
In a market with a binding price ceiling, increasing the ceiling price willa. increase the surplus.b. increase the shortage.c. decrease the surplus.d. decrease the shortage.
Rent control causes larger shortages in the _________ run because over that time horizon, supply and demand are _________ elastic.a. long; moreb. long; lessc. short; mored. short; less
An increase in the minimum wage reduces the total amount paid to the affected workers if the price elasticity of _________ is _________ than one.a. supply; greaterb. supply; lessc. demand; greaterd.
Alexis, Bruno, and Camila each want an ice-cream cone. Alexis is willing to pay $12, Bruno is willing to pay $8, and Camila is willing to pay $4. The market price is $6. Consumer surplus equalsa.
If the price of an ice-cream cone falls to $3, the consumer surplus of Alexis, Bruno, and Camila increases bya. $6.b. $7.c. $8.d. $9.
The demand curve for cookies is downward-sloping. When the price of cookies is $3, the quantity demanded is 100. If the price falls to $2, what happens to consumer surplus?a. It falls by less than
Diego, Emi, and Finn are available to work as tutors for the semester. The opportunity cost of tutoring is $100 for Diego, $200 for Emi, and $400 for Finn. The university is hiring tutors at a price
Gavin has been working full-time as a gardener for $300 a week. When the market price of gardeners rises to $400, Hector becomes a gardener as well. How much does producer surplus rise as a result of
The supply curve for a product is Qs = 2P , and the market price is $10. What is producer surplus? (Graph the supply curve and recall the formula for the area of a triangle.)a. $5b. $20c. $100d.
Isabelle values her time at $60 an hour. She spends 2 hours giving Jayla a massage. Jayla was willing to pay as much as $300 for the massage, but they negotiated a price of $200. In this
An efficient allocation of resources maximizesa. consumer surplus.b. producer surplus.c. consumer surplus plus producer surplus.d. consumer surplus minus producer surplus.
When a market is in equilibrium, the buyers are those with the _________ willingness to pay and the sellers are those with the _________ costs.a. highest; highestb. highest; lowestc. lowest;
Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer’s willingness to pay isa. negative.b. zero.c. positive but less than the marginal
Kyra buys an iPhone for $240 and gets consumer surplus of $160.a. What is her willingness to pay?b. If she had bought the iPhone on sale for $180, what would her consumer surplus have been?c. If the
A tax on a good has a deadweight loss ifa. the reduction in consumer and producer surplus is greater than the tax revenue.b. the tax revenue is greater than the reduction in consumer and producer
Donna runs an inn and charges $300 a night for a room, which equals her cost. Sam, Harry, and Bill are three potential customers willing to pay $500, $325, and $250, respectively. When the government
Sophie pays Sky $50 to mow her lawn every week. When the government levies a mowing tax of $10 on Sky, he raises his price to $60. Sophie continues to hire him at the higher price. What is the change
If a policymaker wants to raise revenue by taxing goods while minimizing the deadweight losses, he should look for goods with _________ elasticities of demand and _________ elasticities of supply.a.
In the economy of Agricola, tenant farmers rent the land they use from landowners. If the supply of land is perfectly inelastic, then a tax on land would have _________ deadweight losses, and the
Suppose the demand for grape jelly is perfectly elastic (because strawberry jelly is a good substitute), while the supply is unit elastic. A tax on grape jelly would have _________ deadweight losses,
The Laffer curve illustrates that, in some circumstances, the government can reduce a tax on a good and increase thea. price paid by consumers.b. equilibrium quantity.c. deadweight loss.d.
Eggs have a supply curve that is linear and upward-sloping and a demand curve that is linear and downward-sloping. If a 2 cent per egg tax is increased to 3 cents, the deadweight loss of the taxa.
Peanut butter has an upward-sloping supply curve and a downward-sloping demand curve. If a 10 cent per pound tax is increased to 15 cents, the government’s tax revenuea. increases by less than 50
The country Autarka does not allow international trade. In Autarka, you can buy a wool suit for 3 ounces of gold. Meanwhile, in neighboring countries, you can buy the same suit for 2 ounces of gold.
The nation of Openia allows free trade and exports steel. If steel exports were prohibited, the price of steel in Openia would be _________, benefiting steel _________.a. higher; consumersb. lower;
When the nation of Ectenia opens itself to world trade in coffee beans, the domestic price of coffee beans falls. Which of the following describes the situation?a. Domestic production of coffee
When a nation opens itself to trade in a good and becomes an importer,a. producer surplus decreases, but consumer surplus and total surplus both increase.b. producer surplus decreases, consumer
If a nation that imports a good imposes a tariff, it will increasea. the domestic quantity demanded.b. the domestic quantity supplied.c. the quantity imported from abroad.d. the efficiency of the
Which of the following trade policies would benefit producers, hurt consumers, and increase the amount of trade?a. the increase of a tariff in an importing countryb. the reduction of a tariff in an
Lilliput imports rope from Brobdingnag, where rope producers are subsidized by the government because of their great political clout. The most efficient policy from the standpoint of Lilliput is toa.
The goal of multilateral trade agreements is usually toa. equalize the level of tariffs across nations so no nation is disadvantaged relative to others.b. use targeted tariffs to ensure that nations
Which of the following is an example of a positive externality?a. Dev mows Myra’s lawn and is paid $100 for the service.b. Dev’s lawnmower emits smoke that Myra’s neighbor Xavier has to
If the production of a good yields a negative externality, the social-cost curve lies _________ the supply curve, and the socially optimal quantity is _________ than the equilibrium quantity.a.
When the government levies a tax on a good equal to the external cost associated with the good’s production, it _________ the price paid by consumers and makes the market outcome _________
Which of the following statements about corrective taxes is generally NOT true?a. They increase what consumers pay for the good.b. They raise government revenue.c. They reduce the quantity sold in a
The government auctions off 500 units of pollution rights. The rights sell for $50 per unit, raising $25,000 of revenue for the government. This policy is equivalent to a corrective tax of _________
Command-and-control regulation may be better than a corrective tax ifa. a corrective tax would have differential effects on different industries.b. some polluters can reduce emissions more cheaply
According to the Coase theorem,a. private actors can reach agreement to solve the problem of externalities without the government.b. corrective subsidies are the best policy to solve the problem of
The Coase theorem does NOT apply ifa. there is a significant externality between two parties.b. the court system vigorously enforces all contracts.c. transaction costs make negotiation difficult.d.
Which categories of goods are excludable?a. private goods and club goodsb. private goods and common resourcesc. public goods and club goodsd. public goods and common resources
Which categories of goods are rival in consumption?a. private goods and club goodsb. private goods and common resourcesc. public goods and club goodsd. public goods and common resources
Which of the following is an example of a public good?a. residential housingb. national defensec. restaurant mealsd. fish in the ocean
Public goods area. efficiently provided by market forces.b. underprovided in the absence of government.c. overused in the absence of government.d. a type of natural monopoly.
The three residents of Smallville are considering a fireworks display. Clark values this public good at $80; Lana at $50; and Pete (who dislikes fireworks) at −$30. Fireworks cost the town $120, or
Which of the following is an example of a common resource?a. residential housingb. national defensec. restaurant mealsd. fish in the ocean
Common resources area. efficiently provided by market forces.b. underprovided in the absence of government.c. overused in the absence of government.d. a type of natural monopoly.
Route 66 is a toll road that is congested only during rush hour. During other times of day, the use of the highway is not _________, so the efficient toll is _________.a. excludable; higherb.
As a percent of national income, taxes in the United States area. higher than in France, Germany, and the United Kingdom.b. lower than in France, Germany, and the United Kingdom.c. higher than in
The two largest sources of tax revenue for the U.S. federal government area. personal and corporate income taxes.b. personal income taxes and payroll taxes for social insurance.c. corporate income
Betty gives piano lessons. She has an opportunity cost of $50 per lesson and charges $60. She has two students: Archie, who has a willingness to pay of $70, and Veronica, who has a willingness to pay
I f the tax code exempts the first $20,000 of income from taxation and then taxes 25 percent of all income above that level, then a person who earns $50,000 has an average tax rate of _________
L ump-sum taxesa. have a zero marginal tax rate.b. have a zero average tax rate.c. are costly to administer.d. impose large deadweight losses.
A toll is a tax on citizens who use toll roads. This policy can be viewed as an application ofa. the benefits principle.b. horizontal equity.c. vertical equity.d. tax progressivity.
In the United States, taxpayers in the top 1 percent of the income distribution pay about _________ percent of their income in federal taxes.a. 5b. 10c. 20d. 30
If the corporate income tax induces businesses to reduce their capital investment, thena. the tax does not have any deadweight loss.b. corporate shareholders benefit from the tax.c. workers bear some
Farmer McDonald gives banjo lessons for $20 per hour. One day, he spends 10 hours planting $100 worth of seeds on his farm. What total cost has he incurred?a. $100b. $200c. $300d. $400
Xavier opens up a lemonade stand for two hours.He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor’s lawn for $40. Xavier earns an
Farmer Greene faces diminishing marginal product.If she plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 3 bushels of wheat. If she plants 2 bags, she gets 5
Diminishing marginal product explains why, as a firm’s output increases,a. the production function and total-cost curve both get steeper.b. the production function and total-cost curve both get
A firm is producing 1,000 units at a total cost of$5,000. When it increases production to 1,001 units, its total cost rises to $5,008. For this firm,a. marginal cost is $5, and average variable cost
A firm is producing 20 units with an average total cost of $25 and a marginal cost of $15. If it increases production to 21 units, which of the following must occur?a. Marginal cost will decrease.b.
The government imposes a $1,000 per year license fee on all pizza restaurants. As a result, which cost curves shift?a. average total cost and marginal costb. average total cost and average fixed
If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit _________ of scale and _________ average total cost.a. economies; fallingb. economies;
If Boeing produces 9 jets per month, its long-run total cost is $9 million per month. If it produces 10 jets per month, its long-run total cost is $11 million per month. Boeing exhibitsa. rising
What is marginal product, and what is meant by diminishing marginal product?
A perfectly competitive firma. chooses its price to maximize profits.b. sets its price to undercut other firms selling similar products.c. takes its price as given by market conditions.d. picks the
When a perfectly competitive firm increases the quantity it produces and sells by 10 percent, its marginal revenue _________ and its total revenue rises by _________.a. falls; less than 10 percentb.

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